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Bretton Woods System

News about Bretton Woods System, including commentary and archival articles published in The New York Times. More

Pictured above: Treasury Secretary Henry Morgenthau speaking at the opening of the Bretton Woods conference on July 8, 1944.

Bretton Woods refers to the international monetary system adopted in July 1944 that established rules for rebuilding the postwar economic order. Though World War II was not yet over, 730 delegates from 44 Allied nations attended the conference at the Mount Washington Hotel in Bretton Woods, N.H., to create a new monetary structure governing the financial and commercial relations among the world’s leading economies. The goal was to avert a replay of the economic disasters of the 1930s.

“The challenge,” wrote Ngaire Woods in “The Globalizers,” “was to gain agreement among states about how to finance postwar reconstruction, stabilize exchange rates, foster trade, and prevent balance of payments crises from unraveling the system.”

Some delegates grumbled that the United States was using its new superpower status to push its own interests — like global free trade — and that it was slow to compromise. At one point, the British representative, the economist John Maynard Keynes, wrote that the Americans “plainly intend to force their own conceptions through, regardless of the rest of us.” (The Soviet Union was at the conference but refused to join the I.M.F.)

But the allies needed American help to rebuild their war-ravaged economies, and what emerged was a consensus among them that would last until 1971.

Under the agreement at Bretton Woods:

— Countries were to maintain an exchange rate in which the values of their currencies could fluctuate only within a narrow range around a fixed value based on gold. Gold's value was set in terms of the U.S. dollar.

— Two organizations were set up to help govern the international monetary system: the International Monetary Fund, which would address temporary imbalances of payments, and the International Bank for Reconstruction and Development, which is now the chief agency of the World Bank Group.

The Bretton Woods system was far from perfect, but it essentially held together until the 1960's. By the Nixon administration, which started in January 1969, the costs of the Vietnam war had fueled inflation, and trade and budget deficits had piled up. The country's gold reserves had fallen, while the government was all but printing money. Faith in the dollar deteriorated. On Aug. 15, 1971, President Nixon unhitched the value of the dollar from the gold standard. His decision was called the “Nixon shock” because he made it without consulting any of the other Bretton Woods signatories. The change opened the era of floating currencies.